Learning from Starbucks – remaining competitive during these difficult times…

March, 2009
Larisa Ortiz, Principal
258 comments

Love ’em or hate ’em, Starbucks has made a name among commercial district professionals as a bellwether retailer along many of our commercial corridors. Well, these days Starbucks is suffering, and in many cases so are our commercial districts. In response, Starbucks is tweaking and evolving its retail model to remain competitive during these difficult economic times..and there is a lot we can learn from their efforts.

If you’ve been into Starbucks lately, you know they are working hard to combat their luxury image. They have been particularly sensitive to the perception (encouraged by their competitors) that all of their offerings are $4 or more. As a result, they have begun to bundle breakfast options to compete with Dunkin’ Donuts and McDonald’s…two retailers benefiting as folks trade down. I pulled a few additional key ‘lessons learned’ from a recent NY Times article (Starbucks Addresses the Price Issue, and Breakfast – New York Times, March 2, 2009) that covers some of the strategies that Starbucks is employing….strategies that suggest a set of fundamental principles we can also apply to our commercial districts.

Diversify your revenue. These days, Starbucks is looking to increase its breakfast sales – not a traditional source of revenue for the store. But this also allows them to be more competitive with other retailers who are offering breakfast options with coffee. Are your local retailers carrying merchandise that meets the changing needs of customers? Are goods languishing on shelves? If your local merchants had the right information about customer needs and wants, would they consider diversifying their merchandise offerings if they know there is demand for it?

Adjust menus to highlight more affordable options, or consider bundling items for sale. Starbucks is doing this by bundling breakfast sandwiches and coffee for under $4, but your businesses can also do this. Bundling gives customers a sense that they are getting more value for their dollar. For example, a small gift stores can create gift baskets out of discrete merchandise.

Maintain your core customer, but find ways to increase visitation from customers that visit less often. The Starbucks strategy – one that emphasises value – aims to increase visitation from customers who visit once a month or less. This customer is more concerned about price-point, which may be different from their regular customers, but just as important.

Survey your customers. Starbucks did this by asking customers to record their breakfast eating habits for two weeks. This information led them to develop breakfast options that prioritized healthy options with ‘enough protein to fill them up until lunchtime’. You can do this by conducting a customer intercept survey in your district and sharing your findings with local merchants.

Applying some of these basic principles may help your local businesses generate additional revenue…and these days, every penny counts.